The court rejected the illegality defence in trust enforcement, emphasizing public policy against unjust enrichment.

[1] This is an appeal against the decision of the Kuala Lumpur High Court delivered on 7 August 2017. The High Court had reversed the decision of the Sessions Court which decision was delivered on 27 October 2016 after a full trial.

[2] This appeal is primarily concerned with the rather contentious issue of the application of the defence of illegality and public policy in relation to an action brought to enforce a trust. When parties in litigation seek to enforce a contract, the illegality defence is sometimes taken, as it was in this action, to deprive the plaintiff of a remedy and perhaps, as this case has shown, reward the defendant with a windfall.

[3] When seeking to establish the illegality defence, reference will invariably be made to the seminal statement of Lord Mansfield CJ in Holman v. Johnson 1 Cowp 341: "No Court will lend its aid to a man who founds his cause of action on an immoral or an illegal act" derived from the Latin maxim ex turpi causa non oritur actio. As we shall see, this maxim, which traditionally governed the defence of illegality, became a strict rule of policy with no room for exercise of discretion by the Court.

[4] For two centuries after Lord Mansfield's pronouncement, the courts have come up with divergent and sometimes inconsistent approaches in confronting the defence of illegality leading to criticisms of uncertainty, arbitrariness and lack of transparency. The approaches adopted were designed mainly to mitigate the harshness of the ex turpi causa principle which, in some instances, led to unfair outcomes and consequences.

[5] Lord Neuberger PSC, in Bilta (UK) Ltd v. Nazir (No 2) [2015] UKSC 23, characterised the issue as "epitomizing the familiar tension between the need for principle, clarity and certainty in the law with the equally important desire to achieve a fair and appropriate result in each case".

[6] Some years earlier, Lord Bingham LJ, in Saunders v. Edwards [1987] 1 WLR 1116, in expressing his misgivings as to the rule, offered a glimpse as to the solution required (at p 1134):

"Where issues of illegality are raised, the courts have (as it seems to me) to steer a middle course between two unacceptable positions. On the one hand it is unacceptable that any Court of law should aid or lend its authority to a party seeking to enforce an object or agreement which the law prohibits. On the other hand, it is unacceptable that the Court should, on the first indication of unlawfulness affecting any aspect of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss nor how disproportionate his loss to the unlawfulness to the unlawfulness of his conduct."

[7] Not surprisingly then, the law in this area has been in a state of flux and it will become necessary to deal fully with the legal principles that are applicable to the present appeal. But first, some background to the present appeal. The appellants here had filed an action in the Sessions Court Kuala Lumpur seeking to enforce a trust and claim for the surplus monies received by Hong Leong Bank Berhad ("the Bank"), the 2nd defendant, as a result of a property sold at a public auction. After a trial, the Sessions Court allowed the appellants' claim. Being dissatisfied, the respondent here (1st defendant at the trial) filed an appeal to the High Court. In the High Court, the respondent relied on the defence of illegality which sufficiently persuaded the learned judge to allow the appeal and set aside the judgment entered by the Sessions Court.